Talk about having it good. The goal is to transition away from fossil fuels and towards greener energy options among investors, nations, and entire blocs. Yet, hedge funds like Third Point, Makuria, and Odey choose to be on the bad list, as evidenced by the…

Talk about having it good.

The goal is to transition away from fossil fuels and towards greener energy options among investors, nations, and entire blocs. But, according to a recent Financial Times investigation, hedge funds like Third Point, Makuria, and Odey are choosing to be on the nice list and are earning significant returns on their investments in the coal sector.

That should go in your stocking.

Let’s get this out of the way first: Coal is the dirtiest, unhealthiest, single most polluting way to produce energy — even more so than oil. And anyone who invests in it is often on the receiving end of a stink eye. But, coal is still used to produce one-third of the world’s energy, and global usage in 2022 was 1.2% higher than the previous year, according to the International Energy Agency. That equates to 8.8 billion tons in just one year.

While zero emissions and clean air are admirable goals, the hedge funds in question argue that the transition to renewable fuels is not going to happen overnight, especially as the planet navigates an energy crisis and Russia slashes its oil and natural gas flow to much of the Western world. In December, the UK even approved plans for a new coal plant for the first time in 30 years. Unsurprisingly, quite a few hedge funds are taking the “It’s nothing personal. It’s just business” approach to coal investments:

  • For the past two years, the share prices of major coal mining companies have risen towards all-time high levels. Leading Australian coal producer Whitehaven started 2021 at $1.27 per share and is currently trading at $5.44, while Swiss miner Glencore increased from $7.50 to $12.50 and leading US producer Peabody increased by more than 700% from $3.38 to $27.86.
  • This achievement has aided the liquidity of hedge funds. According to the Financial Times, Glencore contributed just 3.4 percentage points of Odey’s Brook Absolute Return Focus fund’s 22.8% annual performance.

Due to the dependence [of so many countries] on fossil fuels, Makuria Founder Mans Larrson told the Financial Times that it would be “nearly immoral” to not invest in coal.

Is this place hot? Because of our dependency on coal, a negative feedback loop might develop. Burning results in pollution, which results in climate change, which results in rising temperatures. This year’s winter in the Northern Hemisphere has been significantly milder. That’s not to say it won’t be extremely cold the next year, requiring more coal. The FT was informed by Barry Norriss of Argonaut Capital that his company is shorting the coal miner Thungela Resources. It’s now a seasonal business. “Natural gas is really oriented to the weather, and coal is quite geared to both,” he said. “This year, Europe has escaped an energy catastrophe, but next year we might not be so fortunate.”

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